Hotchin prepared to flip-flop in dogged pursuit of Guardian Trust

Former Hanover director Mark Hotchin has fought to have Guardian Trust included in the FMA's civil case against him and five others associated with the finance group. Photo / Brett Phibbs

Former Hanover Finance principal Mark Hotchin will have to reverse course and admit negligence if he wants to successfully squeeze funds out of the failed lender's former trustee Guardian Trust to help cover an $18 million settlement with the Financial Markets Authority.

The Supreme Court yesterday upheld Hotchin's appeal against earlier rulings that let Guardian Trust avoid any financial obligation in the Financial Markets Authority's case against the Hanover directors and promoters.

Since the appeal was first heard last year, Hotchin and fellow directors Tipene O'Regan, Greg Muir, Bruce Gordon and Dennis Broit have cut a deal with the regulator to pay $18 million, including an unspecified contribution from their insurer and broker. Shareholder Eric Watson didn't contribute to the payment.

Nathan Gedye QC, Hotchin's lawyer, said his client intends to pursue the claim against Guardian Trust, although no timetable has been set.

"We'll have to go to the High Court and go from there," he said.

Hotchin claims Guardian Trust failed in its duty overseeing Hanover and should have acted sooner to limit losses to investors.

For Hotchin to succeed in drawing Guardian Trust into the claim, he'll have to prove he's liable in law, a liability he vigorously denied as part of the FMA settlement.

Justice Susan Glazebrook, one of the three judges upholding the appeal, said it was hard to reconcile Hotchin's statements in the settlement that he wasn't liable with his pursuit of the claim requiring him to prove he was liable, which she said was at best, "hypocritical".

"The suspicion must be that this may be a cynical attempt to force a settlement with Guardian Trust," Justice Glazebrook said. "If this is the case, the courts should not be a party to what would be a misuse of the court processes."

The FMA agreed to settle last year because it saw that as providing a better outcome for investors in Hanover, who otherwise would have waited longer for a court case and possible appeals to be concluded. The regulator froze Hotchin's personal assets for almost five years but gave up on chasing a criminal case when filing the civil suit in 2012 seeking compensation of up to $93.6 million.

The suspicion must be that this may be a cynical attempt to force a settlement with Guardian Trust. If this is the case, the courts should not be a party to what would be a misuse of the court processes.

Justice Glazebrook

Of the 16,500 investors across Hanover Finance, Hanover Capital, and United Finance, it was initially estimated about 5,500 of them were eligible for a payout, with the FMA's claim and resulting settlement covering the period between December 2007 and July 2008. Payouts ranged from 6.5 cents in the dollar up to 19 cents, depending on which company they invested in, with the last distribution to eligible investors expected to be made this month.

Hotchin originally sought to draw Perpetual Trust into the claim as well, but settled with that trustee ahead of last year's Supreme Court hearing. Perpetual and Guardian are now owned by Bath Street Capital, and have merged to become Perpetual Guardian.

"In response to the Supreme Court's judgment in Hotchin v Guardian Trust released 15 March, Guardian Trust is currently reviewing the full judgment," the trustee company said in a statement.

Hanover Finance froze $554 million of investor funds in July 2008 after running into financial difficulties and investors eventually voted to accept a debt-for-equity deal with Allied Farmers, which later turned sour. Both Lehman Brothers and Lombard Finance and Investments had looked at possibly buying the loans in early 2008, former Lombard boss Michael Reeves said in court testimony in 2011.

Both the Serious Fraud Office and FMA conducted lengthy investigations into Hanover's dealings, spending a combined $4.6 million, but neither agency laid criminal charges and the FMA's civil case covered a narrow timeframe.